US Dollar Plunges After Major Sell-off

The U.S. dipped to its record low against the Swiss franc as investors around the world continue to anticipate the outcome of talks aimed at averting a U.S. default.

With the talks between U.S. lawmakers on a plan to raise the government’s $14.3 trillion debt ceiling before an August 2 deadline stalled, the dollar slid to a three-month low versus a currency basket with more falls seen likely if no deal is reached.

The U.S. dipped to its record low against the Swiss franc as investors around the world continue to anticipate the outcome of talks aimed at averting a U.S. default.

With the talks between U.S. lawmakers on a plan to raise the government’s $14.3 trillion debt ceiling before an August 2 deadline stalled, the dollar slid to a three-month low versus a currency basket with more falls seen likely if no deal is reached.

[quote] “As long as the uncertainty over the discussions on the U.S. debt ceiling continue it’s a clear dollar negative. No one wants to hold dollars at the moment,” said Niels Christensen, currency strategist at Nordea in Copenhagen. [/quote]

The Australian dollar was the main outperformer, surging 1 per cent to a fresh 29-year high of $1.1081 after stronger-than-expected Australian inflation data revived the chances of a further interest rate hike.

The Swiss franc and yen also gained strongly as investors sought perceived safer alternatives to the dollar, raising concerns about the possibility that Japanese authorities may intervene to stem yen gains.

Analysts polled by Reuters expect the United States will probably lose its top-notch AAA credit rating from at least one major rating agency, believing the wrangling over the debt ceiling has already damaged the economy.

EURO ZONE CONCERNS

The euro turned lower against the dollar, however, falling 0.25 percent to $1.4476 , having earlier climbed to a three-week high of $1.4537.

The euro’s falls followed comments by German Finance Minister Wolfgang Schaeuble that Berlin was against a carte blanche for the euro zone’s rescue fund to purchase bonds on the secondary market.

Schaeuble’s remarks added to investor worries about whether a new Greek bailout plan agreed last week would be enough to stop the spread of contagion to bigger euro zone economies, pushing Spanish and Italian bond yields higher.

However, with analysts saying the U.S. government may have enough cash on hand to pay its bills until the middle of next month, most in the market held out hope the log jam could still be broken.

[quote] “They still believe there will be a positive resolution reached, but I suspect it’s not going to be enough to satisfy the ratings agencies,” said Joseph Capurso, strategist at Commonwealth Bank in Sydney. [/quote]